Squaring the Circle

Can the UK after Brexit retain membership of the European Single Market without free movement (FoM)?

Short answer: No.

Long answer?: – read on…

The UK government white paper of February 2017 setting out its Brexit aims and objectives managed somehow to be simultaneously both clear and opaque:

“The Government will prioritise securing the freest and most frictionless trade possible in goods and services between the UK and the EU.

Ensuring free trade with European markets – We will forge a new strategic partnership with the EU, including a wide reaching, bold and ambitious free trade agreement, and will seek a mutually beneficial new customs agreement with the EU. We will not be seeking membership of the Single Market, but will pursue instead a new strategic partnership with the EU, including an ambitious and comprehensive Free Trade Agreement and a new customs agreement. We do not seek to adopt a model already enjoyed by other countries. The UK already has zero tariffs on goods and a common regulatory framework with the EU Single Market.

This position is unprecedented in previous trade negotiations. Unlike other trade negotiations, this is not about bringing two divergent systems together. It is about finding the best way for the benefit of the common systems and frameworks, that currently enable UK and EU businesses to trade with and operate in each others’ markets, to continue when we leave the EU through a new comprehensive, bold and ambitious free trade agreement.

That agreement may take in elements of current Single Market arrangements in certain areas as it makes no sense to start again from scratch when the UK and the remaining

Member States have adhered to the same rules for so many years. Such an arrangement would be on a fully reciprocal basis and in our mutual interests.”[1]

The simplest way of securing “the freest and most frictionless trade possible in goods and services between the UK and the EU” would be to remain a member of the EEA (European Economic Area) which all EU members are part of. In a very real sense it is the EEA which is the ‘European Single Market’.

The simplest way of retaining EEA membership would be to not issue notification that we are leaving (as we should if we wanted to leave, as per Article 127 of the EEA Agreement) and then apply to rejoin the EFTA (European Free Trade Association) as technically the EEA agreement is really only applicable to EFTA or EU member states. Below, we reproduce the relevant Article in its entirety.

There are many criticisms of the EFTA/EEA model – about 70% of which are based on falsehoods and misunderstandings. In some ways the EFTA/EEA ‘Norway’ model is better than EU membership (For example Norway represents itself at the WTO, EU member states do not) in other ways it is worse – e.g. EFTA states do not have MEPs or their own European Commissioners to shape EU legislation.

[For more information about the ‘Norway Model’ we would urge you to read[3] Dr Richard North’s enlightening report[4] of the same name.]

In any case, it is impossible to say objectively whether EEA membership coupled with EU membership or EEA membership coupled with EFTA membership is superior. The Americans have a saying “your mileage may vary” which means that on such matters you can only use your own subjective experiences and opinions as a guide to how ‘good’ something is.

In our last blog Brussels open to UK rejoining EFTA we attempted to address some of the criticisms of the Norway model.

The blog was generally well received; indeed Mr Thordur Oskarsson‏, Ambassador of Iceland (itself an EFTA/EEA country) to the UK stated we had made some “Excellent points”.[5]

If the UK was allowed to rejoin EFTA and retain EEA membership it would solve many of the UK’s problems relating to international trade going forward, which we also described in our last blog.[6]

Gordian knot(s)

While many countries around the world enjoy good trading relationships with the countries of the EEA via free trade agreements, the European Union (EU) will not allow countries to enjoy privileged Single Market membership (i.e. deeper integration which removes most non-tariff barriers) without three key things:

Contributions/grants to poorer states on the European continent. (see the points we made in previous blog about the EEA/Norway grants[7])

Oversight to ensure that participating states are ‘playing fair’ – the EFTA states accept the ruling of the EFTA Court when disputes arise concerning the EEA agreement; the Swiss have a complicated system of dispute settlement that the EU is loath to replicate.

Free movement of persons (also known as Freedom of Movement or FoM)

There are solutions to each of these issues if cool heads prevail. The first two are relatively easy:

The EEA grants are effectively a form of targeted foreign aid, which helps our neighbours on the European continent. The UK already spends billions per annum on foreign aid and International Development, so we can see no reason why a UK contribution to the EEA grants could not come from this pre-existing pot, at no extra cost to the UK taxpayer. The UK would still likely make a substantial saving compared to EU membership costs (we will discuss this in a blog next week).

Agree to the EFTA court, send a British judge there to help resolve disputes and send a UK member to take part in the EFTA Surveillance Authority College.[8]

Freedom of Movement

The Swiss got a Free Trade agreement with the EEC in 1972 that did not include freedom of movement, voluntarily signing up to a free movement agreement decades later, so there is a precedent for trade without FoM.

However, it is doubtful that the modern EU would agree to anything more than a basic goods FTA without a specific FoM agreement with the UK. And it goes without saying (although we will) that we need more than that.

It is important to note that both sides want to ‘save face’ in these discussions, presenting their citizens with a good deal. There is no reason however, why a mutually beneficial arrangement cannot be struck.

FoM is where it gets really tricky, but it doesn’t really have to be insurmountable since there are useful precedents.

Firstly, the UK will not be suddenly obligated to join the borderless Schengen Area.

Secondly, UK nationals will want to visit, live, study and work in the EU after Brexit and EU nationals will wish to live, study and work here.

Thirdly, the UK will (clearly) no longer be a EU member state.

Fourthly, freedom of movement has never been absolute in the EEA.

The EEA Agreement allows members to block citizens from the EU or other EFTA states from residing in their countries:

“On grounds of public policy, public security or public health” – Article 28 EEA Agreement[9]

We suggest then; that the EU and UK agree a new compromise, combining elements of the agreements signed with the EU by Switzerland, Norway and Liechtenstein.

Swiss rules for EU nationals mean that:

“Nationals of the EU/EFTA member states do not require a work permit. Within 14 days upon arrival in Switzerland and before commencing work for the new employers, they have to register with the local authorities and apply for a residence permit.

[EU Nationals] must register with the local authority (commune of residence) within 14 days of entering Switzerland.

No residence permit is required for a stay of less than three months, e.g. as a tourist, if you do not work in Switzerland. But if you plan to stay for more than three months you will require a permit. Cantonal law lays down which authority is responsible. The permit is valid for the whole of Switzerland, but you must notify the communal authority of any change in where you live.

A residence permit will be issued if you have enough financial resources for yourself and your family members to ensure that you will not have to claim welfare in Switzerland; you have health and accident insurance for as long as you are to stay. You are not entitled to welfare payments in Switzerland while you are looking for a job.”

Norway has an untested Emergency brake which could be unilaterally used to restrict EU immigration under article 112-113 of the EEA (European Economic Area) Agreement.

Liechtenstein has (citing its small size) negotiated a quota system controlling the number of workers allowed to enter the country from other EEA countries.

Liechtenstein is a member of EFTA and the European Economic Area (EEA) – it participates in the four freedoms of the Single Market, but it has been permitted opt-outs over immigration. As Vicky Ford, a Conservative MEP has said:

“If you look at a country like Liechtenstein, in the EEA, they have access to free movement of goods within the single market [but they] have an absolute cap on the number of people given residency a year – and it is only 90 people. The ability to put an upper break is a concept that has been adopted by EEA members and they have been given access to the single market.”[11]

Critics will argue that Liechtenstein has only been given its special status because of its small size – which is true. But the precedent of a special status nevertheless exists.

Dr Richard North believes the UK could negotiate a similar arrangement.[12]

As Stephen Booth from the Open Europe think-tank has stated, the UK could make an argument for a similar opt-out, based on our particular factors such as population density:[13]

As well as population density, another reason for Liechtenstein’s opt out was that the EEA Council that acknowledged “the vital interest of Liechtenstein to maintain its own national identity.”[14]

Since the UK has in recent years experienced unprecedented mass immigration (indeed the BBC have reported that “8.3m people were born abroad – 13% of the UK population”)[15] surely the UK could claim that greater migration controls were necessary in the interest of maintaining the UK’s own ’National Identity’.

In addition to the above factors, there are partially overlapping but distinct legal differences[16] between EEA freedom of movement and EU freedom of movement, since the former is based around free movement of workers/labour whereas the latter has greater emphasis around the principle of free movement of people/citizens.

This is made clear in the EEA Agreement where it states:

“Freedom of movement for workers shall be secured among EC Member States and EFTA States.”

The UK negotiating team should cite all these precedents to make a combined proposal.

The UK should allow EU citizens to enter the UK (after adequate vetting) on condition that Her Majesty’s Government had an emergency brake which it could use when necessary; could prevent benefit tourism, could set an overall migrant number ‘ceiling’ and require that visitors had sufficient means and adequate health and accident insurance – they would of course expect for UK citizens to be able to visit, work and study in EU countries if they met similar criteria.

This could be something that all sides could find equitable.

It is important to reiterate that these combined elements are all based on existing precedent. These changes could be added to the EEA agreement (which is amended pretty regularly) when it is amended to reflect the UK’s non-EU status.

In summary then, we believe it is impossible to be members of the Single Market without FoM. But we believe it is entirely possible to slightly clarify and adjust the rules around FoM into something that everyone could accept, and benefit from in the years ahead.